Prolonged conflict to hit energy costs, disrupt trade flows & financial markets, Pg15

Key Highlights:

• Prolonged conflict in West Asia may lead to higher energy costs, disrupted trade flows, and financial market spillovers for the domestic economy.
• RBI researchers noted that the conflict's intensity and duration pose risks to inflation and growth outlook.
• A temporary ceasefire between the US and Iran provided a breather to the global economy.
• India's GDP growth is projected to decline to 6.9% in FY27 from 7.6% in FY26, while retail inflation is set to average 4.6% in the current fiscal.

Detailed Insights:

• The conflict in West Asia intensified pressures on global supply chains in March, with some easing in early April.
• Domestic economic activity showed resilience in many segments, but some experienced a slowdown.
• The near halt in tanker movements through the Strait of Hormuz has intensified pressures in global supply chains.
• Global economic activity moderated to an 11-month low due to weakened momentum across manufacturing and services sectors.
• Crude oil prices reached a multi-year high of $118.4 per barrel on March 31, remaining elevated.
• Early signs of deceleration are evident in indicators like port cargo, air passenger traffic, and the outlook of purchasing managers.
• The manufacturing PMI declined to its lowest level in nearly four years, while the services PMI slowed to a 14-month low.
• The index of eight core industries declined, marking a 19-month low, driven by a decline in production of fertilisers, crude oil, coal, and electricity.

Key Concepts Involved:

• Inflation: The rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling.
• GDP: (Gross Domestic Product) The total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period.
• Supply Chain: A network between a company and its suppliers to produce and distribute a specific product to the final buyer.